From a consumer standpoint, a marginal increase in interest rates will probably not have a material impact on the way people spend or save. But keeping rates near zero to recover economy to the degree is also not expected.

Federal Reserve policymakers last week held the overnight lending rate near zero to keep the economic recovery on track by making credit easier to access. But the benefits of a low rate might be diminishing for consumers.

Because nearly 70% of credit cards sport variable interest rates, one might think that the Fed’s decision to stick to a near-zero strategy would be a boon for many Americans. Instead, in a scramble to beat new consumer protection regulations that go into effect on Feb. 22, card issuers have been raising rates, boosting fees and decreasing credit lines. Many credit lines also have baselines built into their products. Read the fine print and you may find that your card won’t fall below 15%.

On the surface, the Fed’s policy would also seem beneficial for new-car buyers. But those dealers offering attractive loan terms may be doing so to help sell slow-moving vehicles, irrespective of monetary policy. The fed funds rate impacts used-car loans even less. Used-car loans are more likely to reflect supply and demand, and default trends, which are tied to unemployment. Buyers will bad credit will continue to pay high rates.

“From a consumer standpoint, a marginal increase in interest rates will probably not have a material impact on the way people spend or save,” says Srini Venkateswaran a partner with the financial institutions group at consultancy A.T. Kearney. “But I also don’t believe [keeping rates near zero] stoked the economy to the degree that was expected.” Even mortgage rates might not see much of a change.

“As the fed funds rate falls, the mortgage rate does not come down to meet it,” says Susanne Trimbath, chief executive of research firm STP Advisory Services and a former document editor for the San Francisco Federal Reserve. “If people look at where it says how your rate is calculated for mortgages, home equity loans and even credit cards, not many of them are tied to the fed funds rate.”
Most mortgage products are tied to the prime lending rates set by banks or to the London Interbank Overnight Rate (LIBOR). “There is no formula that says ‘prime is set at fed funds plus X,'” Trimbath says.

In addition to the decision to hold steady with interest rates, the Fed last week announced it would shift away from its $1.25 trillion dollar acquisition of mortgage-backed securities. That decision could impact mortgage lending more than the fed funds rate.

“With the Fed looking to leave the mortgage-backed security market, all eyes are on private money to step in a fill the void,” says Damien Melle, CEO of West Coast Property Specialists, a real estate brokerage in Southern California. “Either the effective mortgage rate will increase by at least 100 basis points to compensate, or the feds will need to jump back into the market to cover the short fall. If interest rates rise from 5% to 6%, this will price many buyers out of the housing market.”

The Fed’s decision to keep rates near zero could also prove detrimental for retirees and seniors living on fixed incomes. It’s common for retirees to boost the value of their nest eggs by buying certificates of deposit, conservative securities that typically pay more interest than savings and money market accounts. A low fed funds rate has hurt returns on CDs, a trend that’s likely to continue, says Robert Laura, a partner at Synergos Financial Group, a Michigan-based advisory firm.

“Retirees are being forced to stretch for yield and many of them are taking on unnecessary risk,” he says. “Some are moving into bond funds, which can lose principal, or other investments that have long-term consequences to locking money up in a low-interest environment, such as annuities.”

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